Bank of England Keeps UK Interest Rates Steady Amid Inflation Warning Due to Iran War

The Bank of England kept its base rate at 3.75%.

The Bank of England held its base interest rate at 3.75%. It warned of another inflation shock and potential interest rate rises later this year. The Bank also said it is watching the situation closely.

The central bank said UK inflation could rise to 6.2% with interest rates peaking at 5.25% in a worst-case scenario if prices stay higher for longer due to the Iran war. This could lead to higher interest rates. The Bank is monitoring the situation.

This could lead to “forceful tightening in monetary policy” and an increased risk of recession.

Analysts are warning of a huge jump in the Ofgem energy price cap this July as oil prices continue to soar. Oil prices surged to $126 (£94) a barrel - the highest since 2022 - over fears of fresh US strikes on Iran.

Andrew Bailey, Bank of England governor, said borrowing costs were at a “reasonable place” but warned the Bank was monitoring the Iran war and its impact on the UK economy very closely.

Eight members of the Monetary Policy Committee (MPC) voted to hold interest rates steady, while one member wanted to increase the base rate to 4%.

Chancellor Rachel Reeves said: “The war in the Middle East is not our war, but it is one we have to respond to.

“Every choice I make will be about keeping costs down for families and businesses, without repeating the mistakes we’ve seen in the past that resulted in higher inflation and higher interest rates.“

The first effects of the Iran war were laid bare earlier this month when it was revealed that inflation had gone up from 3% to 3.3% in March. Inflation measures the rate at which prices of goods and services increase over time.

Drivers have already been hit with higher petrol and diesel costs, while mortgage rates have risen across the board in recent weeks. UK firms have also warned they think food inflation could jump as high as 7%.

Economists had expected the base rate to remain unchanged because of rising prices.

Before the start of the war at the end of February, economists had said both interest rates and inflation were likely to fall this year.

The Bank of England uses its base rate to try and keep inflation under control.

The idea is that when interest rates are higher, people will spend less as their borrowing costs have increased - this in turn then helps slow down demand, which leaves businesses less able to raise prices, and price increases should slow down.

The Bank of England has a target of 2% inflation and meets every six weeks to discuss whether to change its base rate.

You can get money news and top deals straight to your phone by joining our Money WhatsApp group. We also treat our community members to special offers, promotions, and adverts from us and our partners. If you don’t like our community, you can check out any time you like.

You can sign up to the Mirror's Money newsletter for all the best advice and shopping deals straight to your inbox.

As the base rate has not changed today, then you should not see any immediate change to your mortgage repayments. There are different types of mortgages.

If you have a tracker mortgage, then this follows the movement of the base rate. If you have a standard variable rate (SVR) mortgage, then this also typically changes when the base rate is updated.

Lenders can technically change the rate on this type of mortgage at any time.

If you have a fixed rate mortgage, you have agreed to pay a fixed amount every month for a set period of time. This means your payments are not affected by the base rate and won't change until your fixed deal has ended.

Ben Thompson, director of home moving strategy at Mortgage Advice Bureau, said: “The Bank of England holding the base rate brings a welcome sense of stability at a time of ongoing uncertainty.

“While it won’t lead to an immediate drop in mortgage rates, it does support continued competition among lenders and gives borrowers a clearer backdrop to plan against.“

If your credit card is linked to the base rate, then your interest rate can change when it is updated. The average credit card purchase APR is around 35.8%.

As there is no change to the base rate today, you should not see any changes to your credit card if it is linked to the base rate. But not all credit cards are linked to the base rate.

Interest rates on personal loans and car financing are normally fixed. This means if you're in the middle of an agreement, this should not change even when the base rate is updated.

However, a change in the base rate can impact the rates that are applied to new agreements.

Charlie Evans, money expert at Compare the Market, said: Credit card and loan rates are also unlikely to shift significantly in the short term.

If your savings rate is variable, it can change from time to time, but if your money is locked into a fixed-rate account, then your rate will not change for a specified set of time.

MoneySavingExpert.com lists the best rates currently available, and cash ISAs currently pay more than standard easy-access accounts.

The best rate on an easy-access cash ISA is 4.51% from Trading 212 for new customers. This includes a 0.91% newbie bonus.

The best rate on a standard easy-access account is 4.5% from Chase for new customers. This includes a 2.25% newbie bonus.

If you can afford to lock your cash away, MSE says there are several two-year and five-year fixed rate accounts that pay 4.7%.

Regular savings accounts offer the best rates, but these come with strict terms and conditions.

Zopa pays 7.1% variable for six months but you can only deposit up to £300 each month.

Susannah Streeter, chief investment strategist at Wealth Club, said: Far too many people squirrel money into instant access savings accounts paying paltry amounts of interest.

COPYRIGHT DISCLAIMERS

4English does not own the rights to this content. All rights belong to the owner. 4English only uses this content to help users learn English via the app's features. Contact to request the removal of your content: contact@4englishapp.com.

Luyện nghe